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Budgeting & Finance Guide

Here Are The Dos And Don’ts Of Loan Against Property


The awareness of Loan Against Property is getting increasingly high among the people. However, as with everything noble, there are challenges on the part of LAP. We shall be taking a closer look at the Do’s and Don’ts that are involved in LAP. Here we go:

Non Residential Buildings

It is not the best of times for LAP because of the gradual drift away from the norm. The inclusion of non-residential buildings in the consideration for LAP is not helping matters. The stats globally go to show that increasing trend in accepting unoccupied residential properties is gradually turning the apple cart in the negative direction. When it comes to selling properties in this category, there are poor returns in terms of sales.

The Percentage To Borrowers

LAP is one easy and quick way to raise the desired cash needed to achieve dreams. It deals with the ownership of landed property. Where an applicant can prove the ownership of a property and he is above the age of 25 and not more than age 70, such will qualify to apply for this loan in question. It should be noted that the value that you get out of the loan deal will not exceed 60-65% of the property put on loan.  If the property falls in the category where the borrower is already paying a housing loan, there might be a possible rise in value.

What Happens In Joint Ownership?

If the property is joint ownership, then every stakeholder involved in the investment will be required to put pen on paper. In this case, we shall be talking about joint ownership. The lending bank will insist on all the joint owners to sign a joint ownership form before the loan can be granted. There is no way for a single party to sign away any part of the property in LAP without the joint agreement of all the parties involved.

The Craze For Balance Transfers

We talked about the uneasy time that is sweeping across this sector; it can be blamed on the attitude of most of the borrowers. In an attempt to cut corners, the majority of the borrowers are looking in the direction of balance transfers in their bid to get higher loan amounts.  The rush in this direction can be attributed to the stress that has come upon the sector according to Manavjeet Singh who is the chief executive officer and founder of Rubique- an online marketplace dealing in financial products. He went further to say: “There are a lot of balance transfers, as borrowers look for cheaper rates and higher loan amounts. They can get these due to the high competition. The stress, then, begins to show when property prices remain stagnant or come down”. This is a glaring don’t in the sector.

Loans Not Used For Productive Purposes

The stats show an increase in property prices in the real estate sector over the past decade. As for small businesses, about 40% of their capital expenditure can be financed through LAP. The missing link is the fact that the loan is not used for the specific purpose of financing the small business in the first place. When this happens, the money will not come back to the system and the result of this is an inability to meet up with the payment schedule of the loan. But if the money is plowed back into the system, the results will rob positively on the small business and loan re-payment and business growth will move on together in a positive direction.

The Role Of The Legal/technical Team

You can get a loan against any property that appears in your name. For the benefits of the doubt, the lender’s legal team will come in to very if the papers you presented in your claim of ownership is real. Upon their nod of approval, the technical team from the lender will come in to evaluate the actual worth of the property. All the technical details will be looked into and it is when the property gets their nod of approval as healthy enough that you can move to the next stage of the loan process. In most cases, the business has to show proof of excellent performances for a period between 7-10 years. There should be proof that the business can generate enough interest to service the repayment of the loan. The legality and marketability of the property will be tested by the lender’s lawyers. If they are convinced, then the loan will be sanctioned.

Conclusion

If things are to go on well with LAP, then the rules must be observed to the letter. The attitude of cutting corners with the sole aim of paying less should be discouraged. Loans obtained under LAP should be used for industrial purposes only to reduce stress on the line of business.